Many partners and professionals find Cash Balance an excellent way to increase contributions to their retirement accounts.
With combined Federal and State income tax rates as high as 45%, the tax savings from the contributions and the subsequent earnings on these contributions can be very significant.
For example, one single contribution of $130,000 earning 5% a year for 30 years, would be worth $561,852 at the end of 30 years. However, if the $130,000 had been taxed in the year contributed so that an “after tax” amount was invested, and if subsequent earnings on this contribution had also been taxed in each year (assuming the highest tax rates indicated above), then at the end of 30 years the total value would be only $162,937; 29% of the amount calculated above!
In summary, contributing to a Cash Balance Plan can provide tremendous tax benefits.
These tax deferral benefits apply to both the amount contributed and the subsequent earnings on those contributions.